Patrick Grady
Main Page: Patrick Grady (Scottish National Party - Glasgow North)Energy Spending Priorities: Investors and Consumers
Patrick Grady Excerpts
Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)
I would first like to thank a number of people for this debate, and particularly for its timing. The Chair of the Justice Committee, the hon. Member for Bromley and Chislehurst (Robert Neill)—I see that he is still in the Chamber—was very kind indeed to arrange the schedule so that this was the later of the two debates, which enabled me to get down from Barra in time. Had it been the earlier debate, I am afraid I would not have been on time. I would also like to thank the staff of Loganair, who got me an earlier plane that got me down in time; many thanks before I go too far, taking two planes to get down today. [Interruption.] One of my colleagues says that this is like the Oscars. Well, this is the high point. The tears will be starting shortly.
It is a pleasure to introduce this evening’s debate on energy spending priorities. I will discuss this in relation to three reports from my Energy and Climate Change Committee produced in the past few months on investor confidence, carbon capture and storage and home energy efficiency.
We heard a lot in the run-up to the EU referendum about the impact that a vote to leave would have on investor confidence in the UK, and how businesses craved stability, transparency and certainty to plan for their spending on production, research and jobs. That presupposed that prior to the vote to leave the EU, the policy landscape was somehow calm, tranquil and settled. It is certainly not calm, tranquil or settled now, and we know that the Brexiteers deliberately had no plan in order to avoid scrutiny. That is another debate, which is taking place on television in Scotland tonight, and I will leave that where it is.
In relation to energy policy, the landscape was anything but tranquil, calm and settled. There has been considerable upheaval since the Government assumed office last year. Last June, the Department of Energy and Climate Change announced the early closure of the renewables obligation subsidy for onshore wind, citing manifesto commitments. Although it was only one line, a fact check of three pages was required to work out what it meant, so woolly was the wording. Last July, DECC announced cuts to the renewables obligation for solar PV and biomass, and changes to the feed-in tariff accreditation.
That is just a few of the policy changes that took place last summer, but it is what happened between those announcements that exercised many in the sector and contributed to the decision of the Energy and Climate Change Committee, after extensive consultation with a range of stakeholders, whom I thank for their contribution to our work, to launch our inquiry into investor confidence in the UK energy sector. I thank Jenny Bird, the senior Committee specialist, for the hard work and diligence she put into this report, and I wish her well in her new post at the centre on innovation and energy demand at the University of Sussex.
Early last July, the Office for Budget Responsibility published figures relating to the levy control framework: a notional cap on the renewable energy subsidies that consumers pay through their energy bills which covers the renewables obligation, its successor, the contracts for difference, and feed-in tariffs. Part of the Government’s objective, quite rightly, is to put affordability at the heart of energy policy. The OBR projected in its July assessment that there would be a significant increase in levy control spending compared with its March 2015 assessment. Its March 2015 assessment, the figure was £7.6 billion. By July—in the space of four months—it had increased by £1.5 billion to £9.1 billion. It adds much fuel to the fire of claims and counter-claims about the OBR and the accuracy of its work when it produces such wildly different figures over a four-month period. That clearly influenced the energy policies that were announced over the summer.
Some felt that the increase had not been adequately explained by DECC or the OBR. E.ON told my Committee that
“the evidence around cost overruns…is questionable and not transparent; publication of detailed analysis of the status of the LCF should be a priority.”
ScottishPower said that
“it will be important for the industry to have better visibility of the underlying assumptions and calculations under the LCF so as to enable efficient long-term planning.”
The key word there is “efficient”.
Freedom of information requests have been unsuccessful owing to commercial confidentiality, and questions to Ministers have hit the same buffers. I have therefore raised the matter with the National Audit Office. I am pleased that the NAO has announced a new review of the LCF, which will examine, among other things, the reason for the changes in forecast expenditure. The NAO can jump over the iron curtain that is the commercial confidentiality statement.
Two years ago, the NAO looked at how DECC modelled LCF spend and identified weaknesses that prevented it from having the highest degree of confidence in the model forecasts. Further elements of the LCF forecast need unravelling too, because if spend is set to increase by the amount the OBR has forecast, increased spend under the LCF may not automatically result in increased costs to consumers. A recent FOI request revealed that the Government had forecast that consumers would pay more towards subsidies under the LCF in 2020, but that the average total bill would come down because of lower wholesale prices. In part, that is down to the introduction of wind and solar power, which increase generation capacity at a negligible marginal cost and, therefore, lower the overall cost of wholesale electricity—the well-touted merit order effect.
It was noted by the Committee that increased uncertainty may increase premiums, and we raised that with Ministers recently. The cuts to renewable energy might therefore be counterproductive, as they are reckoned to be by many, because of the added costs of investment due to the Government’s sudden lurches in policy.
During the inquiry, we heard many voices in the industry that were disturbed by the rapid and unforeseen changes to feed-in tariffs and the renewables obligation. Concerns about the lack of detail as to when the second round of auctions for the renewables obligation’s successor, the contracts for difference, would take place have added to the uncertainty. The latest we have heard is that it will be in the last quarter of this year.
Returning to increased bills, Roger Harrabin of the BBC asked DECC to deny that the cuts to energy subsidies would put bills up, but it did not. That shows the merit order effect at work. There was an understanding in the past that money spent was an investment, not a cost. Money spent in the present should also be seen as an investment, not a cost.
We now have more clarity on the timing of the auctions—they will be in the fourth quarter of this year —but we need to know when in the fourth quarter they will be, because companies need to plan and to project. The fourth quarter of the year might be any time between 1 October and 31 December. That is simply not good enough when we are in the seventh month of the year.
We heard that subsidy reductions had created challenges for renewable investors, with new projects in early development suffering the most. Mitsubishi bank told us that it was having 95% fewer conversations with onshore wind developers. Perhaps as damaging could be the risk premium that is now attached to the UK’s green economy as a result not of the changes themselves, but of the way they were made, with little notice of consultation. Indeed, the consultation happened after the announcements. It is no surprise that our witnesses hankered for a clear, longer-term steer from the Government on, for example, what form the LCF would take post-2020.
That is encapsulated in the Ernst & Young renewable energy country attractiveness index, which ranks 40 countries according to the attractiveness of renewable energy investments. The UK slipped from eighth place in June 2015 to 11th in September 2015. That was the first time since the index was established in 2003 that the UK had been placed outside the top 10. Since our report was published, the UK has fallen to 13th—unlucky for some and particularly for the investors. Ernst & Young attributed our fall to the Government’s
“non-committal, if not antagonistic, approach to energy policy”.
I am afraid that the idea of an antagonistic approach to energy policy chimes with the frustrations that I hear from many stakeholders in the energy space when they talk to me. Our report noted the root causes of this crisis of confidence. The first was:
“Sudden and numerous policy announcements”.
The second was:
“A lack of transparency in the decision-making process”.
Thirdly, there was
“insufficient consideration of investor impacts”.
The fourth was policy inconsistency, such as
“claiming to want to decarbonise at lowest cost while simultaneously halting onshore wind”
and choosing more expensive forms of renewable generation. Fifthly, there was:
“The lack of a long-term vision”.
The last was what we called the policy “cliff-edge” in 2020.
My Committee recommended that Ministers clarify the assumptions and methodologies behind their levy control framework calculations. It would be advisable to do that before those assumptions and methodologies come out kicking and screaming from the work of our friends at the NAO. We said that Ministers should set out the post-2020 LCF budget in the context of the fourth and fifth carbon budgets to ensure that the available funding was consistent with meeting our longer-term carbon commitments. We recommended that they develop their carbon plan to achieve the fifth carbon budget in full consultation with investors, using transparent methodology and with clarity about how transitions would be managed as new technologies become established, including the intended “glide path” out of subsidies, rather than their being pushed over a cliff edge.
It is usual practice in these debates to refer to the Government’s response to the Committee’s recommendations, but I am afraid that I am unable to do so. Initially, I thought that would be because the Government had failed to produce a response, despite our report being published four months ago. It is actually because we decided, as a cross-party Committee, to send the response that we did receive last Tuesday straight back to the Government. Our report contained 14 detailed recommendations, based on extensive evidence from stakeholders and experts, including the estimate from one of our witnesses that Government policies could raise the cost of financing projects by £3.14 billion a year. None of that was responded to. Instead, we were afforded only loose replies to themes set out in the report’s summary. Indeed, it was unclear from the response whether anyone at the Department of Energy and Climate Change had read beyond page 4 of the 47-page report in the four months since its publication—a rate of one page a month.
Patrick Grady (Glasgow North) (SNP)
I am a member of the Procedure Committee, and the Government slapped down our report on private Members’ Bills and gave it no detailed consideration whatsoever. Does my hon. Friend share my opinion that the Government appear to be asleep at the wheel on this, as on so many issues?
Mr MacNeil
The evidence might well lead my hon. Friend to take that view. That is happening in tandem with the other trend that is running amok in the southern part of the UK—that of resignations. While resignations are everywhere, the Government’s lack of consideration for Committees and other stakeholders seems to be the order of the day.
No parliamentary Committee should be treated in that way. However, it reinforces the feeling of Stockholm syndrome—or is it Lima syndrome?—when the poor souls in industry come complaining to the members and Chair of the Committee about their difficulties in getting ideas, thoughts and communication straight to the heart of Government. It makes people who are trying to make things better in the energy space wonder just how seriously the Government take them.
We urge the Government to try harder and send us something respectable for a comprehensive assessment before the recess. Investor confidence can then, we hope, begin to be rebuilt.
Carbon capture and storage is another example of the need to rebuild confidence. CCS is a technology in urgent need of development. We often talk about the energy trilemma, but there is a climate change trilemma as well. On current analysis it is difficult to see how we can have fossil fuels but no CCS and still meet our long-term decarbonisation projections at the same time. As the Secretary of State’s reset speech mentioned a dash for gas we know that fossil fuels feature in the Government’s plan. I checked on the GridCarbon app for smartphones—I am sure you have it, Madam Deputy Speaker—for current energy usage in the UK this evening. It is 51.4% gas and 5.3% wind. The key figure is the 295 grams of carbon dioxide produced for every kilowatt-hour. The 2030 target is meant to be 100 grams. It will be interesting to see quite how we are going to get to that, given the current trajectory.
As the Chair of the Committee on Climate Change, Lord Deben—from the Lords, obviously—said, not having CCS would cause the UK an issue. I love the brilliantly understated manner of that fine English gentleman’s statement of high alarm about the targets that the Government might have difficulty in meeting. He was quite right, and his delightfully understated way of putting it had far more effect than anyone shouting, running and screaming about the issue. It certainly made people pause on the morning he said it, which was the day of the launch of the fifth carbon budget.
I hope the Government will have more positive noises to make about CCS. People out there are still hanging on by their fingernails to see what the Government will say. They decided to ditch their £1 billion carbon capture and storage competition, on the day of the autumn statement. It was not in the statement itself, but was slipped out, alas, in a notice to the London stock exchange, which was deemed more important than Parliament at the time; we have certainly seen in recent days that it reacts more rapidly than Parliament when the news is bad. I note that Government promised £250 million to Aberdeen to help with the oil downturn, as part of the UK’s broad shoulders, but that one decision on CCS potentially took away £500 million, double that figure.
It is not just that the move on CCS on the day of the autumn statement was announced to the City without Parliament being told; the worst part of it is that there were serious bids in earnest preparation. People were working in good faith towards the Government’s competition. My Committee and the Procedure Committee may feel badly let down, but we are nothing by comparison with those working on the competition, devoting their working days, months and perhaps even years to it. In fact, I was invited by the Foreign Office to go to Alberta in Canada to see a carbon capture and storage project. One arm of Government thought that the UK would become a leader on CCS, but alas, within a month, it seemed that my trip had been wasted. I hope not; I hope that tonight the Secretary of State will give us some positive words on carbon capture and storage, with dates, timelines and the sort of thing that the industry is looking for.
Subsequently, in our report on CCS we criticised DECC’s decision as short-sighted, given that the costs of later projects are expected to fall rapidly, once primary infrastructure is in place. The Institute of Engineering and Technology set that out in a brilliant briefing paper for our Committee, as well. We also said that the Government should devise a new strategy for CCS in conjunction with a new gas strategy. We advised the Department to assess the financial and other benefits of using our North sea infrastructure. Work has shown that there would be enhanced recovery of up to 12% from the North sea oilfields if we used them as a place to store carbon. The work of the Committee put that forward, and I would like to take this opportunity to thank Dr Marion Ferrat for her work on the report. We did not send the Government’s response to that report back to them. I have it here with me tonight, as proof. However, the response still failed to address our recommendations in detail. There was no clarity on whether DECC envisages that CCS will be needed at all, on whether any CfDs will be available for CCS or on the proportion of new gas-fired plants will be retrofitted with CCS. Since then, the Committee on Climate Change has reiterated the need for carbon capture and storage, calling for a “strategic approach” to the development of CCS, and stating that the technology is of “critical importance” to the UK’s efforts to decarbonise. Alas, it was not critical enough on the day of the autumn statement last year.
Patrick Grady (Glasgow North) (SNP)
Here we are again: yet another estimates day debate where the one thing that does not actually get discussed is the estimates. The motion authorises a reduction in the expenditure of the Department of Energy and Climate Change to the tune of £2,605,722,000, as outlined in HC 967 of 2015-16 —all 652 pages of it.
The impact that the reduction will have on investors and consumers has been ably investigated by the Energy and Climate Change Committee, which is so effectively chaired with flair and panache by my hon. Friend the Member for Na h-Eileanan an Iar (Mr MacNeil). He is one of only two Scottish National party MPs ever to chair a Select Committee, the other being my hon. Friend the Member for Perth and North Perthshire (Pete Wishart), who also has things to say about the estimates process.
Page 238 of the booklet suggests a cut of £184 million to the Department’s budget for managing the UK’s energy legacy safely and responsibly, which I am sure will help all of us sleep at night. Page 241 lists the EU Government grants received. I suppose they will not appear much in future, which I am sure the Minister of State, Department of Energy and Climate Change, the hon. Member for South Northamptonshire (Andrea Leadsom), will be happy about—interestingly, she is absent this evening, although I do not know what could possibly be keeping her away—but the 78% of my constituency who voted to remain will probably beg to differ.
Interestingly, the implications of the Barnett consequentials are nowhere to be found in the booklet, even though we were repeatedly told during the English votes for English laws process that estimates days were our opportunity as Scottish MPs to have our say on consequential spending. The reality is that there is no such opportunity. Professor David Heald of the University of Glasgow in my constituency told the Procedure Committee that the estimates process is “completely irrelevant” to Barnett allocations. That has been proven once again during today’s two debates.
It is also clear that estimates days are not very useful in scrutinising the detail of Government policy. Despite the fact that we are considering three Energy and Climate Change reports, my hon. Friend the Member for Na h-Eileanan an Iar has outlined how woefully inadequate the Government’s response to them has been. Even though this is supposed to be a chance for Select Committees to have their reports discussed on the Floor of the House, the reality is that time is compressed. There are 30-plus Select Committees and three estimates days a year, which means that, at best, a Committee has a one in 10 chance of actually getting its reports debated on the Floor of the House. It is not just the estimates process that needs to be reformed, but the way in which Select Committees and their reports can be best used to hold the Government to account.
Many of the policy points have already been discussed, including the importance of energy efficiency both for cutting climate change emissions and for improving wellbeing and reducing fuel poverty. I declare an interest, because on Friday I had smart meters installed in my home. I look forward to the impact that will have on my own energy efficiency, as well as on my time efficiency.
Investor confidence is another hugely important aspect of the debate. Of course, the greatest threat to investor confidence has to be the Brexit vote, so it is very disappointing that the Energy Minister, who was so in favour of a leave vote, is not here to tell us what the consequences will be.
As is so often the case in this House, it is the Scottish Government whom we have to look to for the best lessons and examples. On renewable energy, 49.7% of Scotland’s electricity consumption now comes from renewable sources—well on track to meet the Government’s target of 100% by 2020. That has helped us reach our world-leading climate change targets, and the Scottish Government have also committed to investing £103 million to increase the number of warm homes and reduce fuel poverty.
I have highlighted three inadequacies in the very short time I have had, including the inadequate procedure for examining Government supply and expenditure, particularly now that EVEL has been introduced. Even when we are able to scrutinise Government policy, we find that that process is inadequate, and the powers that the Scottish Government have are also inadequate to the task at hand. There is a need to devolve energy policy and so many other policy areas to the Scottish Government.
There will be literally no debate on today’s second item of business. At 10 pm, this House will be asked to authorise £254,040,155,000 of Government expenditure without any opportunity to scrutinise the measure in detail or to table an amendment to it. The system is in urgent need of reform. Perhaps that reform will come while this House still controls the purse strings of Scotland, but perhaps not. Time for that, like mine for this speech, is running out.